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Week in review: Dealing with Sandy

by Suzanne Miller  |  Published November 2, 2012 at 1:35 PM
It was a week of extremes dominated by Sandy, the monster storm that tore across the U.S. East coast, causing an estimated $50 billion in economic damages and prompting the New York Stock Exchange to close for two days -- the first weather-related closing since 1888. But even as the storm churned up fresh economic uncertainty, companies continued to churn out mergers and a few stray IPOs.

Walt Disney Co. led the M&A pack with one of the biggest deals of the week and one of the biggest in its own history, splashing out $4.05 billion in cash and stock for Lucasfilm Ltd., the producer of epic adventure films such as the Star Wars and the Indiana Jones series. The deal is Disney's second-biggest transaction after its $7.6 billion purchase of Pixar in 2006 and just ahead of its $3.9 billion acquisition of Marvel Entertainment in 2009. As for the 68-year-old George Lucas, who owns the production company, despite this being his first big merger he didn't retain a banker for the sale. Instead, he cast a large team of lawyers through the firm Latham & Watkins LLP. One of those lawyers, Christopher Kaufman, worked for the production company more than 20 years ago. A number of other lawyers in the deal have also worked with Lucasfilm.  

Activist investor Carl Icahn also grabbed headlines in the entertainment world after snatching a 10% stake in Netflix Inc. The online entertainment company has looked a bit more vulnerable following its misstep last September when CEO Reed Hastings briefly entertained the idea of spinning off the company's popular DVD business -- a plan the markets promptly trashed. In a filing, Ichan said the company should sell out to its bigger competitors, although he didn't say how he planned to force the issue.

Judging by some recent reports, Reed may be among a growing roster of CEOs who feel shareholder heat in months to come. Schulte Roth & Zabel LLP recently published its annual Shareholder Activism Insight report and found that shareholder activism is expected to rise through 2013 among companies that have had performance issues "The extent to which corporate executives take a dim view of shareholder representation on the board of directors is surprising and a significant change from prior surveys," the company noted. "This attitude suggests that there may be more contentious contests between companies and activists in the future as companies may be more likely to fight to keep shareholder representatives out of the board room."

Among other U.S. M&A news, PVH Corp., owner of brands including Tommy Hilfiger, Izod, Arrow, Bass and Van Heusen, plans to buy Warnaco Group Inc. for $2.9 billion in cash and stock. The deal will give the company full control of the Calvin Klein trademark and help expand PVH's global reach by aligning Warnaco's operations in Asia and Latin America with the company's operations in North America and Europe.

Another prominent U.S. deal included pipeline company Williams Partners LP, which will spend some $2.36 billion for the chemical and pipeline assets of parent Williams Cos. Williams Partners will pay almost $2.3 billion for an 83% interest in the Geismar olefins production facility, as well as Williams' refinery-grade propylene splitter and also, its pipeline in the Gulf region for $100 million. The deal is taking advantage of a recent ruling that cuts taxes on ethylene produced from natural gas-based raw materials, according to one report.

In the international energy markets, Russia's telecoms-to-utilities conglomerate Sistema JSFC is set to become the new owner of Rotterdam-based oil company Argos Group Holding BV, just one year after the target company was formed.  The Moscow-based buyer will acquire 100% of Argos, which claims to be the largest independent group in the Western European downstream oil market with annual revenue of about $14 billion. The companies did not disclose terms of the deal.
The U.S. private equity market had at least one big-ticket deal as RedPrairie Corp. said it would buy JDA Software Group Inc. for $1.9 billion, combining the two supply chain software management firms. Terms of the deal call for RedPrairie to pay $45 per share in cash for Scottsdale, Ariz.-based JDA, a premium of 33% over the target's close on Oct. 26, before word leaked it was exploring a sale. The deal will be funded with fully committed debt financing from Credit Suisse as well as new equity funding from RedPrairie owner New Mountain Capital LLC.

Among cross-border deals involving public and private companies, Germany's pharmaceuticals and chemicals giant Bayer AG swooped in to buy Schiff Nutrition International Inc. for $1.2 billion. The deal provides a profitable exit for the target's private equity shareholder TPG Capital, which two years ago paid $48.8 million buying a 25% stake at a price of $6.52 per share. That means the Texas buyout shop is making five times its money on the investment.  Bayer has been using acquisitions to strengthen its position in existing markets - this is its third acquisition in the U.S. this fall.

And in the U.S. IPO market, it was a a quiet week all things considered for storm-tossed U.S. exchanges, although investors did celebrate one notable offering for the aptly named Restoration Hardware. The specialty home furnishings retailer priced at the high end of its initial range, raising $124 million.  The specialty home furnishings retailer was taken private in 2008 in a deal valued around $175 million.

Finally, in the department of deals-that-continue-to-drag-on, EC regulators extended their review of Glencore International's near-$36 billion takeover of Xstrata to Nov. 22 after the companies offered unspecified concessions, which one source said involved the sale of zinc assets.
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